RESUMO
Flash crashes in financial markets have become increasingly important, attracting attention from financial regulators, market makers as well as from the media and the broader audience. Systemic risk and the propagation of shocks in financial markets is also a topic of great relevance that has attracted increasing attention in recent years. In the present work, we bridge the gap between these two topics with an in-depth investigation of the systemic risk structure of co-crashes in high frequency trading. We find that large co-crashes are systemic in their nature and differ from small ones. We demonstrate that there is a phase transition between co-crashes of small and large sizes, where the former involves mostly illiquid stocks, while large and liquid stocks are the most represented and central in the latter. This suggests that systemic effects and shock propagation might be triggered by simultaneous withdrawals or movement of liquidity by HFTs, arbitrageurs and market makers with cross-asset exposures.
RESUMO
We introduce simplicial persistence, a measure of time evolution of motifs in networks obtained from correlation filtering. We observe long memory in the evolution of structures, with a two power law decay regimes in the number of persistent simplicial complexes. Null models of the underlying time series are tested to investigate properties of the generative process and its evolutional constraints. Networks are generated with both a topological embedding network filtering technique called TMFG and by thresholding, showing that the TMFG method identifies high order structures throughout the market sample, where thresholding methods fail. The decay exponents of these long memory processes are used to characterise financial markets based on their efficiency and liquidity. We find that more liquid markets tend to have a slower persistence decay. This appears to be in contrast with the common understanding that efficient markets are more random. We argue that they are indeed less predictable for what concerns the dynamics of each single variable but they are more predictable for what concerns the collective evolution of the variables. This could imply higher fragility to systemic shocks.
RESUMO
During the unfolding of a crisis, it is crucial to forecast its severity at an early stage , yet access to reliable data is often challenging early on. The wisdom of crowds has been effective at forecasting in similar scenarios. We investigated whether the initial regional social media reaction to the emerging COVID-19 pandemic in three critically affected countries has significant relations with their observed mortality a month later. We obtained COVID-19 related regionally geolocated tweets from Italian, Spanish, and United States regions. We quantified the predictive power of the wisdom of the crowds using correlations and regressions of geolocated Tweet Intensity (TI) during the initial social media attention peak versus the cumulative number of deaths a month ahead. We found that the intensity of initial COVID-19 related tweet attention at the beginning of the pandemic across Italian, Spanish, and United States regions is significantly related (p < 0.001) to the extent to which these regions had been affected by the pandemic a month later. This association is most striking in Italy as when at its peak of TI in late February 2020 only two of its regions had reported mortality. The collective wisdom of the crowds at early stages of the pandemic, when information on the number of infections was not broadly available, strikingly predicted the extent of mortality reflecting the regional severity of the pandemic almost a month later. Our findings could underpin the creation of real-time novelty detection systems aimed at early reporting of the severity of crises impacting a territory leading to early activation of control measures at a stage when available data is extremely limited.